The Rise of Saudi Arabia: Trade and Finance

Part 3 of 3

The Rise of Saudi Arabia [Trade and Finance]

Finance and trade are expected to make up 13% of the kingdom’s GDP compound annual growth rate into 2030. This part of the series will provide analysis on these two industries and their expected changes as part of the country’s evolution.

KSA’s GDP is as Large as All Other GCC Countries Combined

Saudi Arabia - estimated GDP trade and finance sector growth 2014-2030

Saudi Arabia has the largest GDP in the Gulf Cooperation Council (GCC) and the Middle East and Northern Africa (MENA) region. The chart below compares KSA’s GDP to its GCC counterparts.

  • Saudi Arabia’s GDP is almost as large as all other GCC countries combined.
  • All GCC GDPs follow similar cycles of highs and lows.
  • GDPs in 2020 are expected to contract globally due to the COVID-19 pandemic, but J&A expects the kingdom’s GDP to continually climb as government spending increases in 2021 and beyond.

International Trade: KSA Makes up Nearly 30% of GCC Imports and Exports

Imports and Exports by Country and GCC region 2015-2018

Saudi Arabia alone accounts for almost 20% and 25% of MENA’s imports and exports, respectively. There are 19 countries in MENA. Exports out of the KSA consist mostly of raw materials, transportation, and machinery. Due to the kingdom’s size, it can increase its regional exports apart from fuel. KSA has the ability to import more tourism, hospitality, and leisure services and technology once these industries are more developed.

Investments in finance and trading infrastructure are expected to grow KSA’s GDP by $150 billion through 2030. This growth will be challenging, as fundamental legal frameworks need to be established for effective small and medium (SME) lending and capital markets. KSA’s investment in trading infrastructure will become a more powerful driver as the manufacturing capacity of the country also begins to increase and the state grows as a distribution hub in the region.

Small and Medium Business Lending Lags Behind Comparable Economies

Small and medium lending and trade finance are essential elements to grow any economy. It is estimated that nearly 40% of (or 100 million) global jobs are a result of small and medium businesses. GCC countries’ average lending to SMEs is far behind other MENA countries. KSA and the UAE lend less than 5% of total funds to SMEs, whereas non-GCC countries place 15% of total lending into SME businesses.

J&A completed a deep dive of KSA imports and exports in its Global Trade newsletter. The entire series can be located here. In the kingdom, 60% of exports are fuel; imports and raw materials make up approximately 80% of the state’s imports. KSA holds the second most oil reserves in the world next to Venezuela.

Lending to Small and Medium-Sized Enterprises as a Share of Total Lending

Small and medium business lending is key to development of GDP growth. Globally, SMEs account for 23% of GDP.

  • KSA is behind its regional counterparts in SME lending and financing.
  • To successfully implement more advanced SME lending, KSA will need to privatize several industries and implement a legal framework that can apply to international business owners as well as domestic ones.

SME lending is an essential activity to enable economic growth in the private sector. There is significant room for growth in lending to small and medium-sized business, as well as in better provision of financial services to households, including mortgages and investment products in GCC countries. Households play an important role in growing the KSA economy through savings.

KSA Monthly Household Earnings from 2006 to 2017

  • Monthly incomes are adjusted for income tax, reserve assets plus government stock market equity, and interest payments.
  • Monthly incomes have steadily increased since 2005, and are expected to continue increasing into 2030.
  • Saudi Arabia is less dependent on international workers compared to its GCC counterparts such as the UAE. This allows the kingdom to invest in its citizens on a larger scale.
The next part of our series will take a deeper look at manufacturing and healthcare within the context of KSA’s 2030 vision growth.

Source: IAGS | The World Bank | IMF GCC Banking | IMF GCC Markets | IMF Trade and Foreign Investment | Saudi Arabia Vision 2030 | UAE Ministry of Finance | McKinsey and Company